Why Do Car Insurance Quotes Vary So Much between Companies?

Each auto insurer has its unique risk profile that determines what types of policyholders they prefer and reward with discounts. Also there are various and specific factors influencing carriers in the way they evaluate risks, conduct business, make profits, employ staff or sell policies. These elements naturally reflect on premium calculations and largely explain why car insurance quotes are so different from one company to another? Let’s look into differences a bit more and consider how it may affect your premium.

  1. Targeting Different Market Segments

Each carrier has already decided on what is a good risk and bad risk for themselves and focused on certain types of drivers when they established a rate structure. And they use various measures to create target market profiles. In other words, they look at various factors like drivers’ age, marital status, driving experience, credit score, zip code and homeownership. They usually include the type of car insured in the equation too. This process is designed to eliminate the risks they consider too high by offering higher quotes. Of course, they offer highly competitive quotes to drivers they are happy to insure.

Certainly, good drivers get great rates from most insurers. However, there are companies that offer relatively cheaper rates to motorists with traffic tickets, students, drivers of hybrid automobiles, mature drivers with recent claims and so on. You just have to find the company that is more tolerant to small issues you may have, like not having great credit score.

They manage to offer lower insurance rates than their usual rates for their preferred applicants by offering several discounts generously. Carriers differ in the way they offer discounts too. First of all, they offer different types of discounts. And the size of discounts offered can be substantially different. For example, first of the two insurers that consider credit score as a factor can offer 20% discount for good credit while the second offer only 10%.

  1. Using Different Factors and Calculators

Each company carries out its own statistical correlation analysis to quantify the risks and come up with its own vehicle insurance calculator to process the factors they consider important. Quite a few carriers switched their attention from looking at past performance of applicants to predicting future losses by looking at financial and other indicators like zip code demographics. And yet, there are a few companies which still heavily rely on traditional indicators like claim history and traffic tickets.

It is no wonder car insurance rates are so different from one company to another considering the fact that every carrier has unique way of assessing risks and proprietary premium calculation formulas.

  1. Having Different Cost Structures

Each vehicle insurer has different costs as a result of distinctive operational set up, advertising campaigns, office overheads, staff remunerations, logistic expenses and most importantly claim losses and profits from other operations and investments. For example, you will probably end up paying for it one way or another if your insurer is into advertising heavily on prime time TV and during the most watched sports events.

This means that it is not always about how good or a bad driver you are. Many other variables are added to the equation that cause quotations to vary so wildly. In other words, policyholders are always the final bearers of costs. They end up picking the tab when their insurers get it wrong in so many ways.

  1. Varying Corporate Cultures

Each company develops unique corporate culture over time as a result of their historical challenges and directions taken in response to them. Some firms believe in aggressive advertising campaigns and pricing structure. They go after most types of risks and aim to beat competition in price. They believe in being profitable by selling large numbers of policies rather than high profit margins on each policy sold. Naturally, such companies will offer more affordable prices in comparison to ones who aim to make as much profit as possible from each policyholder.

The obvious distinction is between online and agency based insurers. You may like having your local agent but you should know that you probably pay a bit more for this choice.

  1. Ability to Spread the Risks or Specialize

Ultimately it is down to how each company manages risks and how good its underwriting skills. Usually top vehicle insurance companies sell other policy lines like home, business and life and achieve their positions by spreading risks through different lines of products across the country. However, small, local providers, like regional farm bureaus, can find their own niche and be successful in that field. This specialization or risk diversification results in totally distinctive insurers with diverse outlooks that will naturally result in widely different auto insurance rates.

So many variables are aggregated from hundreds of sources in order to evaluate the chance of a claim and its size. The higher the risk of a claim is the higher the quote. As the underwriters get better in assessing risks, they can offer laser sharp quotes for each policyholder thanks to lightening fast computer programs.

How to Find the Cheapest Car Insurance Quotes

Prices can vary widely between insurers due to differences in the statistical indicators used, factors taken into account in premium calculations, past claim experience of each company, their risk preferences and operational costs. That is why you must always compare auto insurance companies. Without exaggeration, premiums quoted can be several times different between two insurers that look similar to each other on the outset.

This highlights the importance of getting a few quotes and comparing them. If you don’t shop around you run the risk of paying several times more for the same coverage, in comparison to the cheapest price you could have gotten.

Also, you shouldn’t make the mistake of thinking that rates don’t change much in time. Each company adjusts its rates pretty often and each adjustment can be big. In addition, they may stop offering certain discounts or offer new discounts that changes their competitive position in the market. If you ask how often should you shop for auto insurance we would advice at least once a year. Comparison shopping is certainly one of the most influential factors in getting the best rates.

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